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Reverse mortgage failed, lack of clarity on tax treatment

Experts say that reverse mortgage failed because of lack of clarity on tax treatment.

Apnaloan.com Research Bureau

19 Feb 2008

According to estimates of National Housing Bank, or NHB, only 150 out of the estimated 80 million borrowers have availed of a the reverse mortgage loan. The reverse mortgage   offers loans to senior citizens against their self-owned properties. It was proposed as an instrument of income for senior citizens. A senior citizen can mortgage a self-owned, self-occupied residence and get a loan against the property. This loan amount varies from lender to lender between 40%-60% value of the property. The loan amount is disbursed to the customer in equated monthly installments.

Most reverse mortgage loans are being offered at a rate of 10-11 per cent. The property is evaluated every five years and the rate of interest and monthly installment change as per the change value of the property.

Industry experts and analysts say that the failure of reverse mortgage loans can be attributed to confusion on how to tax the mortgage

It is not yet clear if the monthly payments should be treated as income or just a loan. Furthermore, banks are not sure how to account the accrued interest while giving out these loans.